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Higher Business Management

Unit 2Learning Outcome 5

Operations

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Operations/Production

Three distinct phases

Inputs Process Outputs

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Inputs

Raw materials

Labour

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Process

Converting raw materials into something useful

Use of machinery and other processes

Assembly

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Output

The finished product! Packaging Storage Distribution Transport

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Factors Affecting Production Systems

Nature of the product Quantity to be produced Resources available Labour Capital

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Methods of Production

Job Production

Batch Production

Flow Production

MASS PRODUCTION IN LARGE FACTORY

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Job Production

A house built to your own design

A custom-built boat A piece of artwork A hand-turned wooden bowl

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Batch Production

A number of similar products (repeated jobs)

The same house repeated on a building site

Bakery produce - each batch may differ slightly

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Flow Production

Mass production of almost identical products

Cars Washing machines

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Quality Control

‘Bolting the door after the horse has gone’

Leads to waste and scrap

Can be very “costly”

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Quality Assurance

Making sure the horse cannot bolt

Getting it right first time All aspects of the business

including the commitment of the workforce

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Quality - A Definition

Those features of a product or service that allow it to satisfy customers’ requirements

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Measuring Quality

Tangible Appearance Reliability Durability Functions Suitability After sales

service Maintenance

Intangible Image and

brand (‘street cred’)

Reputation Exclusivity

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Quality Systems

Total quality management Benchmarking Quality circles

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Right first time Consistent, clear

message on quality Staff commitment to

ongoing improvement

Partnership with suppliers

Educate and train staff

Supervisors encourage and help

Eliminate fear of failure

Departments integrate and share problems

Set clear, achievable goals

Help employees to take pride in their work

Train and educate Establish a structure

and culture to support these aims

Total Quality Management (TQM)

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Features of TQM

Commitment to customer needs Close links with the supply chain Personal responsibility by employees Company-wide policy for all staff Emphasis on teamwork Clear measures of “quality” Information gathering to support these

measures Well-used 2-way communication

systems

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Benchmarking -

A Definition

Benchmarking is the process of setting competitive standards, based on the achievements of other firms, against which an organisation will monitor its progress.

Benchmarking tends to focus on the “best in class” companies, but for specific functions a company may compare itself to an organisation in a different industry.

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Types of Benchmarks

Internal - comparison with a function within the organisation

External - comparison with other organisations

Competitive - direct comparison with a competitor

Generic - comparing general business activities (eg recruitment)

Customer - contrasting the level of fulfillment of customer expectation

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Quality Circles

Production workers know more about the production process than “managers”

Workers are motivated by being involved and consulted about production problems (empowerment)

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Types of Stock

Raw materials, components, etc

Work in progress (unfinished work)

Finished goods

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The Importance of Stock Control

“Stock out” = lost sales and poor reputation

Excess stock = high storage costs Excess stock runs risk of damage,

obsolescence, “opportunity costs” (alternative use for the money tied up in stock)

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Factors Influencing Stock Levels

The level of demand Unpredictability of demand Degree of spoilage/perishability Rental costs for storage Bulk-buying discounts Reliability of suppliers Competition - luxury/necessity

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Elements of Stock Control

Maximum stock levels Minimum stock levels Rate of consumption Lead time - ordering to

receipt Re-order level

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Just-in-time (Kanban System)Advantages

Stock exactly matches production Improves cash flow (less tied up) Savings on purchase and storage

costs Less stock wastage Production delays prevented Can respond to changes in demand Close ties with suppliers established

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High dependency on suppliers to meet delivery and quality standards

Suppliers must be willing to participate (can be high-risk - ‘all the eggs in one basket’ - M&S suppliers)

Increase in order processing costs

Just-in-time (Kanban System)Disadvantages

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The Purchasing Function

Having sufficient stock available Avoiding wastage of stock Having the correct quality In the factory when needed Competitive prices paid Building good relationship with

suppliers

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Best quality Lowest price Delivered in correct

quantities Delivered at the correct time

The Purchasing Mix